Equity and Trusts Revision Handouts 2020 PDF

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Equity & Trusts Revision Materials (Updated: March 2020 )Equity & Trusts Revision Handouts 2020Table of Contents:Topic Page Numbers1. 3 Certainties (Essay & Problems) and PrivatePurpose Trusts (Problems)2 to 312. Formalities 32 to 543. Constitution & Covenants 55 to 6...

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Equity & Trusts Revision Handouts 2020 Table of Contents: Topic Page Numbers 1. 3 Certainties (Essay & Problems) and Private 2 to 31 Purpose Trusts (Problems) 2. Formalities 32 to 54 3. Constitution & Covenants 55 to 69 4. Private Purpose Trusts (Essay), 70 to 109 Unincorporated Associations (UIA), and Charitable Trusts 5. Secret Trusts 110 to 127 6. Breach of Trust, Constructive Trusts, Tracing, 128 to 159 and Resulting Trusts (Problems)

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3 Certainties + Private Purpose Trusts 2014 Zone B Question 1 “How is the duty of making a responsible survey and selection to be carried out in the absence of any complete list of objects? This question was considered by the Court of Appeal in Re Baden (No 2) [1973] Ch 9. That case was concerned with … a discretionary trust and not a mere power; but plainly the requirements for a mere power cannot be more stringent than those for a discretionary trust… The trustee must not simply proceed to exercise the power in favour of such of the objects as happen to be at hand or claim his attention.” (Megarry VC in Re Hay’s Settlement Trusts, 1982) Discuss. Suggested Answer (I-L-A-C): Introduction: The question calls for a critical discussion of the tests of object certainty in trusts and powers of appointment. Following the direction of Lord Langsdale in Knight v Knight (1840), the three certainties of intention, subject-matter and objects must be satisfied for there to be a valid trust. Over the years, the courts have developed various tests for the certainty of objects in fixed trusts, discretionary trusts, and powers of appointment. The discussion below will survey the different tests developed by the courts and consider their applicability specifically to powers of appointment (as was the situation in the case of Re Hay’s ST (1982)). Law: The requirements of certainty in both trusts and powers have to do with two main reasons, namely: 1. To distinguish between situations where the testator really intended to impose a mandatory trust duty (upon trustees) or merely assigning a power of appointment to a power-holder. 2. To ensure that the property is correctly identified and is dealt with in accordance with the wishes of the testator. It must be clear to the trustees or power-holders themselves exactly what their duties or powers are. The trustees or power-holders should also be clear as to whom the testator intended to benefit (namely, the objects for the trusts/powers). As a trust involved mandatory duties imposed upon the trustees, the courts have always held that a stricter test is required before objects-certainty is satisfied. In IRC v Broadway Cottages (1955), the House of Lords held that for both fixed and discretionary trusts, the “Complete-List Test” must be applied to determine objects-certainty. This means that the trustee bears the burden to show that conceptual certainty and evidential certainty Equity & Trusts Revision Materials (Updated: March 2020) Page 2 of 159

are both certified. Conceptual certainty would not be satisfied if there is uncertainty or vagueness in defining the class or classes of individuals who comprise the objects. For instance, “good citizens” is too vague – C.T. Emery gave that as an example of a hopelessly wide concept. As for evidential certainty, the trustees also bear the burden to list down every single individual who is a member of the class of objects. For instance, “testator’s children” – trustee must list down every single son and daughter of the testator. There is, however, no necessity to physically locate all of the objects (i.e. whereabouts certainty is not required) as the trustees may apply to the courts for directions on distributing the trust properties/rights should any the location of any the objects not be ascertainable (this is known as a Benjamin Order from the case of Re Benjamin (1902)). On the other hand, the test for certainty of objects in relation to powers has always been whether the power-holder (or donee of the power) may say with certainty that any given individual is or is not a member of the class of objects. This is known as the “Any-GivenPostulant Test” or the “Is-Or-Is-Not Test” – as laid down by Harman J in Re Gestetner’s Settlement (1953). As can be seen from the requirement, the power-holder must be able to show conceptual certainty in order to determine the boundaries of the class so that it is possible to decide whether any given individual is or is not a member of the class. However, unlike the Complete List Test above, there is no requirement that the power-holder be able to draw up a comprehensive list of all the objects (i.e. evidential certainty need not be satisfied by the power-holder). This was re-affirmed by the House of Lords in the case of Re Gulbenkian’s Settlement (1970). Following the House of Lords’ decision in McPhail v Doulton (1971), the “Any-GivenPostulant Test” is also now applied to discretionary trusts. This means that the “Complete List Test” only applies to objects-certainty for fixed trusts, and the “Any-Given-Postulant Test” applies to objects-certainty for both discretionary trusts and powers. The House of Lords’ decision in McPhail was re-affirmed by the Court of Appeal in Re Baden (No. 2) (1973) where Sachs LJ, Stamp LJ and Megaw LJ suggested different approaches as to how the “Any-GivenPostulant” test should be carried out for discretionary trusts.

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Arguments: Despite the broad guidelines given in the cases above, it is submitted that a lot of uncertainties remain as to how precisely the “Any-Given-Postulant Test” should be carried out for discretionary trusts and powers. To begin with, Lord Wilberforce in McPhail laid down three limitations in respect of the “Any-Given-Postulant Test”: (i) conceptual certainty is required (for both trust/power); (ii) evidential certainty is also required but this point alone will not result in the trust/power failing; and (iii) the trust must be administratively workable (i.e. the class of objects cannot be so large as to be irrational, too troublesome or too costly for the trustees to carry out the trust duties). Harman J’s approach in Re Gestetner (1953) is similar for powers, in that conceptual certainty is required for objects-certainty for powers. In essence, this means that the test will be satisfied if the boundaries concerning the identification of the class of objects are clearly drawn. The problem is that the courts ended up applying a different test altogether from 1953 to 1970 for objects-certainty in powers! The test applied was the “One-Person Test” – i.e. whether at least one person clearly fell within the class of objects. Examples include Re Gibbard (1966) where “old friends” was considered certain for a power because it was possible to find one person who is an old friend of the testator! This would definitely fail if the correct conceptual/class certainty test was applied. Thankfully, the House of Lords rectified the situation in Re Gulbenkian (1970). In that case, Lord Upjohn reiterated the strict “Any-Given-Postulant Test” against the erroneous approach of the Court of Appeal in the same case. While the above authorities should be sufficient to conclude that conceptual or class certainty is a definite requirement for the “Any-Given-Postulant Test” in both trusts and powers, a lot of uncertainties prevail as to how the trustees or power-holders should satisfy evidential certainty. The question is simply this: while we know that the trustees or powerholders are not required to draw up a comprehensive list of every individual in the class of objects, how much surveying should the trustees or power-holders carry out before we can conclude that evidential certainty is satisfied? In other words, is there a duty for the trustees or power-holders to survey the field and draw up a list of as many possible members of the class as they can? In Re Baden (No.2), Sachs LJ gave a very ‘slack’ approach. According to this approach, all that is required is for the trustee to be able to determine conceptual or linguistic certainty. The onus to prove evidential certainty is reversed upon the postulant seeking to prove that he or she is a member of the class of objects. If he or she succeeds in proving this, he or she is an object of the class (and evidential certainty is discharged). Failure to convince the trustee would simply mean that he or she is outside the class of objects. This reversal of burden simply means that the trustee need not care about who actually shows up bringing proof. The trustee is only concerned about whether the postulants who actually show up succeed or fail in proving they are members of the class. The advantage of this test is that it is very easy to carry out and seems to imply that there is no real duty upon the trustee to survey the field at all. Equity & Trusts Revision Materials (Updated: March 2020) Page 4 of 159

The disadvantage is that it may end up contrary to what the testator originally had in mind (i.e. the testator may have had a larger class of objects in mind that just the postulants who actually show up bringing evidence). Stamp LJ, on the other hand, required a very precise and strict approach. The trustee, according to this approach, must be able to clearly say of any individual that he or she is either within or outside the class. This would naturally require the trustee to survey the field widely in order to achieve the required clarity and precision. While he was careful to state that the trustee need not comprehensively list down every object of the class, in practice, it is argued that the wide duty to survey the field here is really not that much different from the “Complete List Test” above. While this approach is clearer a fairer one compared to that of Sachs LJ’s above, it is submitted that it is too similar to the “Complete List Test” to be of any use. Megaw LJ, in the same case, proposed instead a ‘substantive numbers’ approach. According to him, all that is required is that the trustee can say for certain that a substantial number of individuals belong within the class of objects, and it is immaterial that it is not possible to say with certainty that other objects are within or outside the class of objects. The advantage of this approach is that it appears to escape the difficulties of strictly satisfying conceptual or linguistic certainty. The disadvantage is that the approach is questionable. After all, when examined critically, this test is really not that different from the “One-Person Test” that has been rejected in Re Gulbenkian. Both tests dispenses with the need for conceptual or class certainty and collapses the test into a mere ‘numbers game’ (one person satisfying the test; or in this case, a “substantial number” of persons!). In Re Hay’s ST (1982), Megarry VC argued that the suggested approaches in Re Baden (No. 2) above are specifically for discretionary trusts rather than for powers. According to him, the test for objects-certainty in powers should not be more stringent than in discretionary trusts. This implies that the duty of power-holders to survey the field should logically be lesser than that of trustees. The problem with the ‘guidance’ provided by Megarry VC is that it is very vague and uncertain. How much more stringent is the duty to survey the field in a discretionary trust, as compared to the situation of a power? It appears that the courts seem to prefer a case-by-case approach on this question rather than to lay down clear and precise rules on the scope of said duty. Finally, it should be noted that Re Hay’s ST involved a HYBRID or INTERMEDIATE POWER. Such a power would allow the power-holder to appoint anyone in the world with the exception of people in a restricted class – e.g. “John should choose anyone in the world except for himself, his spouse and his next-of-kin.” Megarry VC carefully noted how such an intermediate power would be valid but an ‘intermediate trust’ would fail for administrative unworkability. It is argued that his distinction here is a guide for us to distinguish between the scopes of the duty to survey the field in a discretionary trust compared to the same duty in a power of appointment. As a discretionary trust involved a mandatory duty, an ‘intermediate trust’ would include practically every person in the world (excluding the individuals in the restricted/excluded class). This would fall within what Lord Wilberforce (in McPhail) meant Equity & Trusts Revision Materials (Updated: March 2020) Page 5 of 159

when he said that “a class so large… as to not resemble a class at all” would be too uncertain and such a trust would fail for administrative unworkability. Here, it is argued that the reason why an intermediate power would never fail for administrative unworkability is because a power of appointment is entirely optional – i.e. the power-holder cannot be compelled to exercise his/her power. Therefore, it should more accurately be said that there is no duty to survey the field at all within a power. However, should the power-holder choose to exercise his/her power, he/she simply proceeds to exercise the power in favour of such of the objects as happen to be at hand or claim his/her attention.

Conclusion: In conclusion, we can confidently say that the “Any-Given-Postulant Test” is the appropriate test for objects-certainty in both discretionary trusts and powers following the decisions of McPhail/Re Baden. While there are still arguments as to how the test is to be carried out in practice (note the different approaches of the judges i n Re Baden (No.2)), it is safe to say that the problems are largely academic. The fact is, it should be noted that there has not been another appeal to the higher courts for clarification for more than forty years since Re Baden (No.2). That would imply that trustees in the real world have been applying one of the suggested approaches (or a combination of more than one suggested approach) in order to administer discretionary trusts. The same implication would also apply to situations involving powers of appointment following Re Hay’s ST. In fact, it could be said that there would be far less problems with powers since they are generally non-justiciable (and noncompellable) in the first place.

2013 Zone A Question 2 Explain the nature and validity of the following clauses in Arnold’s will concerning the distribution of his residuary estate: (a) my trustees may distribute up to £100,000 as they see fit among alumni of the University of London who live in countries that are struggling with disease, poverty, or armed conflict; (b) my trustees shall distribute one-third of my residuary estate as they see fit among my friends and their immediate families; (c) the remainder of my estate, if any, shall be distributed equally among all current and former members of the English Wine Appreciation Society. Shortly before Arnold died, the records of the English Wine Appreciation Society were destroyed in a fire. The secretary of the society said that it was impossible to compile an accurate list of current and former members. Equity & Trusts Revision Materials (Updated: March 2020) Page 6 of 159

Suggested Solution: The discussion below analyses the three bequests in Arnold’s will against the requirements of the three certainties as set down by Lord Langsdale in Knight v Knight (1840). (a) £100,000 among alumni of UOL: A proper construction of the words in Arnold’s will would suggest that Arnold intended to confer upon his trustee a power of appointment. As the trustees MAY DISTRIBUTE UP TO £100,000 (presumably with any undistributed sums going to the 3rd disposition in (c) below for the English Wine Appreciation Society), this appears to be a ‘gift-over in default of distribution’ clause. With that, it is argued that the first bequest cannot be a trust obligation but merely a power of appointment. As the power was conferred upon Arnold’s trustees, it would therefore be a fiduciary power of appointment. This means that Arnold’s trustees are cannot be compelled to exercise the power – but merely to consider from time to time to exercise it. Also, should they decide to exercise the power, it must be exercised in good faith as befits their fiduciary office. There is no issue with subject-matter. The trustees are empowered to distribute up to £100,000 of Arnold’s residuary estate. The real issue here seems to be certainty of objects of the power. Following Re Gulbenkian’s Settlement (1970), the test for certainty of objects for a power of appointment is the ‘any-given-postulant’ test from Re Gestetner’s Settlement (1953). The House of Lords in McPhail v Doulton (1971) also confirmed that the test for certainty for discretionary trusts and powers of appointment is the same one. This means that while the trustees need not compile a list of every individual fits into Arnold’s intended class of objects, they must still be able to ascertain with certainty whether or not a particular individual is or is not a member of the class that Arnold had in mind (i.e. Conceptual Certainty is required). In this case, it means that the trustees must be able to make out what Arnold meant by “alumni of the University of London who live in countries that are struggling with disease, poverty, or armed conflict”. While it may be possible to identify some countries which are clearly struggling with disease, poverty, or armed conflict (as well as certain countries where such issues clearly do not exist), there may yet be some countries where it may not be possible to say with certainty whether or not they are struggling with such issues. All three issues here were given in very general terms – for instance, does ‘struggling with disease’ mean an epidemic, or would a dengue outbreak suffice?, or, would ‘poverty’ mean crippling economic disabilities or mere economic disadvantage? With that, it is argued that the court may likely invalidate this power of appointment on the grounds that it failed to satisfy the ‘conceptual certainty’ test above. The question remains unanswered whether a power of appointment (whether a mere power of appointment, or that of a fiduciary nature, as in the present case) should be required to satisfy the same high standards of certainty as that required for discretionary trusts. After all, in the past, the courts were willing to allow for such powers of appointment to be validated so long as it was possible to ascertain at least one person satisfying what the testator had in mind (as Equity & Trusts Revision Materials (Updated: March 2020) Page 7 of 159

was the case in Re Gibbard (1966) and Re Allen (1953)). Should that ‘one-person test’ be applied (or even the test proposed by Megaw LJ in Re Baden (No. 2) (1972) – where a ‘substantial number of persons’ be identified), the above power may be valid. Following Re Gulbenkian, however, it does appear that powers will be invalidated if the class/conceptual certainty test cannot be satisfied. Barring a possible restatement of the law by the courts, it is argued that the power of appointment in (a) will fail for lack of object certainty.

(b) One-third of residuary estate among my friends and their immediate families: As for Arnold’s second bequest, it is clear on the words in the will that he intended to create a mandatory obligation (‘shall’) on his trustees to distribute his property. This would therefore be a trust (Lambe v Eames). Furthermore, as the trustees have also been given a dispositive discretion (‘as they see fit’), it would be a discretionary trust. Once again, the subject matter of the trust is clearly defined – i.e. one-third of Arnold’s residuary estate. As above, the test for certainty of objects in a discretionary trust would be the ‘anygiven-postulant’ test in McPhail v Doulton (1971). The problem lies with the fact that the word ‘friends’ is uncertain. While there may be several older decisions upholding the certainty of ‘friends’ (for example, in Re Gibbard (1966), “old friend” was upheld for a power of appointment by Plowman J; in Re Coates (1955), “forgotten friend” was also upheld for a power of appointment; and in Re Lloyd’s T...